Online shopping is very popular today, which is why eCommerce is as successful as it is. People simply don’t want to go out and shop when they have the option of doing it in their own homes, for a lower price and with more variety of choice.
The profit you can make through your eCommerce business basically has no limit.
1. What should your margins be?
Profit margins are one of those things that vary from industry to industry. In the restaurant industry, profit margins are less than 10%, for example. Just so you can get the whole picture, we can compare this to an astonishing 80% in the consulting industry. In fact, these numbers can sometimes even reach the range between 100-300% in the same industry.
In general, profitable industries are considered to be real estate, accounting, consulting, and legal services. The average margin here is 10%. In contrast, a low margin would be 5%. Finally, a high margin will be something along the line of 20%.
When it comes to eCommerce, there are no such clear answers. The profit margins depend greatly on the type of products or services you sell. This is why a universal profit margin for eCommerce doesn’t exist. It simply can’t be estimated as a general rule when there are too many variables to take into account for an exact percentage. This is why each individual eCommerce business is responsible for calculating and estimating their own profit margins.
2. The Importance of profit margins
Profit margins are extremely important because they tell you if the prices you set are too high or too low for your business.
Profit margins can also help with financing. Your business can have good ideas and products and offer good services, but if you want your loan to grow, you need to know what your profit margins are. Without this information, credit institutions won’t give you the loan you want.
Profit margins can also help you identify the issues you have in running your business. If your profit margins are low, you may have some pricing or accounting issues, for example. You could also be dealing with expense management issues. Pricing errors most often creates challenges for cash flow which can significantly threaten your company.
3. Improving the profit margin of your eCommerce business
You can improve your profit margins in a few different ways. First, you can increase your prices. This isn’t as easy as just setting a higher price on a product, though. You’ll need to research different methods to price your products, as well as the price acceptable on the market and offered by your competition.
Secondly, you should cut the products and services that simply aren’t bringing in any money. You should also stock up on popular products. Selling the same products for years doesn’t make much sense when the product doesn’t really sell. So, instead of keeping that product around, stock up on the one that’s currently popular and selling fast.
Finally, you should diversify your inventory. Introducing new products is always exciting for customers, as they now have one more thing to turn to you for. Before introducing a new product, make sure to do thorough market research so that you figure out what exactly your customers want. Make sure your inventory is as organized as it was before the product was introduced. You can always talk to professionals like General Carrying and similar for all your inventory needs, so as to save time and guarantee success.
Strategic sales are a sure way of guaranteeing more profit. This should be your final way of improving your profit margins. You can increase your sales either by repeated sales or upselling. The first one implies that there is trust between you and the client the first time they opt for your services. The important thing is not to break that trust. Upselling comes down to having different versions of the same product. If your eCommerce sells phones, for example, you can always encourage your client to buy an updated and more expensive model before they pay.
You can also try to reduce your expenses in areas where you notice excessive spending. For example, reducing the cost of production doesn’t mean cutting vital parts of the process out of the budget. You should ask suppliers for discounts if you’re ordering in bulk or you could set up an invoice payment plan.
Keeping up with overhead costs is would mean keeping up with some marketing, administrative, payroll, and other general expenses. High overhead costs can significantly reduce your profit levels. To avoid this, you can ensure your profits are high enough to cover the costs. Not only that, but you should still have some money left after these costs are met. So, it’s simply the matter of increasing your profits which you can do if you take a look at the tips previously given.
In conclusion, managing the demand and profit margins is how a successful business shows venture. Being successful doesn’t happen overnight. Business owners have to work hard and understand their profit margins in order to make something out of their business. As an already established business, you know this better than anyone. Continuing down this path and working hard will surely bring you the profit you’ve always dreamed of.
About the Author Nick Brown
Nick is a blogger and a marketing expert currently engaged in projects for Media Gurus, an Australian business and marketing resource. He is an aspiring street artist and does Audio/Video editing as a hobby.
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